As we navigate the fiscal landscape of 2025, one thing is clear: the Internal Revenue Service (IRS) has ramped up its enforcement and compliance efforts, with a sharp focus on closing the so-called “tax gap” — the difference between taxes owed and taxes paid.
This resurgence in IRS activity is fueled by technological improvements, expanded data access, and increased funding through recent legislation. For taxpayers — both individuals and businesses — this translates to more audits, faster notices, and stricter scrutiny. But rather than panic, this is the time to strategize, prepare, and protect your financial future.
Let’s explore what’s changing, why it matters, and how you can proactively safeguard your finances in this new tax era.
The IRS’s revitalized enforcement posture is no accident. Three major factors have converged to create this environment:
The Inflation Reduction Act of 2022 provided the IRS with nearly $80 billion in additional funding over 10 years. While some of this funding has been redirected or delayed, the agency has already invested in:
⪼ Upgraded digital systems
⪼ Hiring thousands of new auditors and agents
⪼More robust analytics and AI-driven matching tools
Estimates show the tax gap has ballooned to over $600 billion annually. Much of this gap is attributed to underreported income, especially among self-employed individuals, gig workers, and small business owners.
The IRS now integrates information from banks, third-party payment processors (like PayPal and Venmo), and even cryptocurrency exchanges. The use of AI-powered flagging tools allows for more precise targeting of high-risk returns.
Bottom Line: Expect faster notices, expanded audits, and less tolerance for errors or omissions.
Contrary to popular belief, this crackdown isn’t limited to high-income earners. While the IRS has committed to focusing on taxpayers earning more than $400,000 annually, the net is far wider.
Here’s who’s squarely in the crosshairs:
⪼ Self-Employed Individuals and Gig Workers
Platforms like Uber, Airbnb, Etsy, and DoorDash now issue 1099-Ks more consistently, and the IRS is watching. Unreported or underreported income from these sources is a major trigger.
⪼ Small to Mid-Sized Businesses
Businesses that consistently report net losses, claim large deductions, or show inconsistent payroll/employment tax compliance are likely to draw attention.
⪼ Cryptocurrency Investors
With new Form 1099-DA expected in 2025, crypto traders who thought their wallets were anonymous will be subject to reporting rules similar to securities.
⪼ High Net-Worth Individuals
IRS agents have been trained to investigate complex financial structures, trusts, and foreign income sources, making it critical for high-income earners to review their strategies.
The following areas are receiving heightened scrutiny:
1. Schedule C Filers
Underreporting income, inflating expenses, or mixing personal with business costs? Schedule C is a favorite IRS target.
2. Excessive Deductions
High charitable contributions, home office deductions, and meal/entertainment write-offs are red flags — especially without documentation.
3. ERC (Employee Retention Credit) Claims
Many businesses rushed to claim the ERC during and after COVID. The IRS is now auditing ERC refund claims for accuracy and abuse.
4. Payroll Tax Compliance
The IRS is cracking down on employers that:
⪼ Misclassify employees as independent contractors
⪼ Fail to deposit withheld taxes
⪼ Don’t issue proper 1099s or W-2s
5. Foreign Accounts and Crypto
Failing to file FBAR (FinCEN 114) or Form 8938 can lead to steep penalties, even criminal charges.
➠ Conduct a Mid-Year Tax Review
Work with your CPA to assess your current tax position. Catch issues before year-end, and determine if estimated payments, withholdings, or deductions need adjustment.
➠ Reconcile Your Records
Ensure that your:
⪼ Income matches your 1099s
⪼ Expenses are supported by receipts and documentation
⪼ Bank statements reconcile with books
➠ Be Conservative with Deductions
Aggressiveness without justification leads to audits. Make sure deductions are legitimate, documented, and supported by a tax position.
➠ Hire a Qualified CPA or EA
Enrolled Agents (EAs) and CPAs not only prepare returns but also represent you before the IRS if a dispute arises. Avoid the risk of going it alone.
➠ Document, Document, Document
In today’s audit environment, every deduction and credit needs support. Digital tools like QuickBooks, Expensify, and tax organizers can be lifesavers.
Receiving a letter from the IRS doesn’t automatically mean disaster. However, how you respond is crucial.
Here are key steps to follow:
1. Do Not Ignore It
Many notices are time-sensitive. Failure to respond could lead to liens, levies, or wage garnishment.
2. Verify the Letter’s Authenticity
IRS scams are rampant. A legitimate notice will have a notice number (CP###), your tax ID, and clear IRS branding.
3. Respond Promptly and Professionally
If the notice requests clarification or documentation, provide it neatly, clearly, and within the timeframe. Don’t over-explain.
4. Hire Representation
A professional can often resolve the issue faster, minimize penalties, and may even negotiate payment plans or Offers in Compromise (OICs).
At Riley & Company, we understand the anxiety that comes with increasing IRS activity — but we also see it as an opportunity to help clients become more proactive, organized, and strategic with their taxes.
Here’s how we support individuals and businesses in this climate:
🔹 Tax Planning & Projections
We work year-round to help clients:
⪼ Minimize surprises
⪼ Plan major purchases and investments tax-efficiently
⪼ Understand the tax implications of business decisions
🔹 IRS Representation
We represent clients facing:
⪼ IRS audits
⪼ CP2000 underreporting notices
⪼ Tax liens and levies
⪼ Wage garnishments
⪼ Installment Agreements or OICs
🔹 Bookkeeping and Payroll Compliance
We provide full-service bookkeeping, payroll setup, and quarterly filings to keep small businesses compliant and audit-ready.
🔹 Entity Structuring and Restructuring
Forming or revisiting your entity structure (LLC, S Corp, C Corp) can yield tax advantages and protect against IRS scrutiny when done correctly.
The IRS of 2025 is smarter, faster, and more aggressive than ever before. But the key takeaway isn’t fear — it’s preparation.
With the right team, tools, and mindset, you can:
⪼ Stay compliant
⪼ Minimize liability
⪼ Defend your position if audited
⪼ And ultimately focus on what you do best — growing your life and business
At Riley & Company, we’re here to help you do just that.
Contact our team to schedule a consultation or mid-year tax review.
